Game Points: Game Console and Software Stock Update

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Includes: ATVI, EA, MSFT, NTDOY, SNE, THQIQ, UBI
by: Todd Mitchell

A roundup of recent news relating to game console makers and gaming software publishers:

  • Microsoft (NASDAQ:MSFT) cuts X360 targets for fiscal 2007. Microsoft reported $2.96 billion in revenue from its Entertainment and Devices division in 4Q06, a 76% increase from a year ago, and approximately 25% of total revenue of $12.54 billion. Division operating losses were $289 million, but Microsoft believes it will be profitable in fiscal 2008 (July). About 4.4 million X360s were sold in 4Q06, up from about 1 million in 3Q06. Microsoft CFO Chris Liddell said Microsoft now expects to sell 12 million X360s by the end of June 2007, down from its previous target of 13 million-15 million. This slowdown is expected, due to excess inventory in the channel.
  • Activision (NASDAQ:ATVI) preannounced blowout fiscal 3Q07. Revenue of $823 million exceeded guidance by 35%, while EPS of $0.41, were about twice our $0.23 estimate. It looks like Guitar Hero 2 was a $200 million franchise this holiday, about twice what we expected. Call of Duty 3 generated $100 million, plus $20 million for downloads, and Tony Hawk and Marvel: Ultimate Alliance each did more than 2 million copies, for $75 million to $85 million per title. Fiscal 2007 revenue should be $1.34 billion and EPS about $0.20. Company reiterated target of $1.6 billion in fiscal 2008. We raised our price target to $18 from $14 but maintained our HOLD rating as shares are likely to take a breather.
  • Nintendo (OTCPK:NTDOY) reported record results. Sales were up 73% in the first nine months of the fiscal year and operating income grew over 100%. Nintendo sold 3.19 million Wii at launch, less than its goal of 4 million, but all 4 million units were produced. Three Wii titles sold over one million copies. The DS sold 18.9 million units for a total of 35.6 million, and DS software reached 154 million units with 13 DS titles selling over a million copies. Nintendo said 1.4 million Wii were connected to the Internet and 1.5 million Virtual Console games were downloaded. Over 100 million total connections for DS were announced with 3.5 million unique users playing games via a Wi-Fi connection.
  • Ubisoft (UBI) fiscal 3Q07 exceeds as well. Total revenue was up 24% to $408 million. X360 titles accounted for 28% of revenue driven by Tom Clancy's Rainbow Six Vegas and Tom Clancy's Splinter Cell Double Agent while Wii titles accounted for 21% with Red Steel making Ubisoft the top third-party publisher for Wii in the U.S. and Europe. Ubisoft raised its revenue guidance for fiscal 2007 to 16% growth from a previous growth of 10% to 12%.
  • WoW sells 2.4 million copies in 24 hours. World of Warcraft: The Burning Crusade [PC] sold 2.4 million copies in 24 hours. The expansion pack sold 1.2 million copies in the U.S.and more than 1.1 million copies in Europe, and 1.7 million players logged on to the game in its first day of release. Of World of Warcraft's over eight million subscribers, about 2 million live in the U.S. and about 1.5 million in Europe.
  • Sony (NYSE:SNE) PS3 to launch in Europe and PAL on March 23. Sony expects to have 1 million units with about 28 games and eight games for download via PlayStation Network for the launch period. Only the 60GB model will be available initially in Europe for about $777, $836 in the U.K., $781 in Australia, and $840 in New Zealand.
  • Square Enix to license Epic Games' Unreal Engine 3. Square Enix is now building a new technology platform company wide that will use third-party middleware including the Unreal Engine 3. Other developers using the Unreal Engine 3 include EA (ERTS), Midway, BioWare, THQ (THQI), Gearbox and Silicon Knights.
  • THQ gets greenlight from Nasdaq. After submitting its delayed filings with the SEC, the Nasdaq notified THQ that it would continue to be listed.